An “Escape” from being a Bankrupt

ARC News   •   November 22, 2017

Are you currently having a bankruptcy proceeding initiated against you? Here is a way for you to “escape” from being declared a bankrupt.

On 6 October 2017, the new Bankruptcy (Amendment) Act 2017 (also known as Insolvency Act 1967/ hereinafter referred to as theNew Act”) came into force together with the Insolvency Rules 2017, Insolvency (Voluntary Arrangement) Rules 2017, Insolvency (Fees) (Amendment) Rules 2017 and Insolvency (Cost) (Amendment) Rules 2017.

The New Act introduces a new rescue mechanism for bankruptcy through a composition known as voluntary arrangement,[1] providing an “escape” for debtor to enter into an arrangement with his creditors at any time prior from being declared a bankrupt.[2]

Voluntary arrangement is defined as a composition in satisfaction of a debtor’s debt or a scheme of arrangement of a debtor’s affairs.[3] This composition allows debtor to negotiate and/or propose a structured plan to settle his debt with his creditors.

Steps to opt for voluntary arrangement

  1. Appoint a nominee

The debtor will appoint a nominee to act as an independent person to supervise the voluntary arrangement and its implementation.[4] The nominee can be a chartered accountant, an advocate and solicitor, or such other person to be determined by the Minister.[5]

  1. Application for an Interim Order

 

The debtor makes a court application for an interim order of voluntary arrangement and submit a copy of the application to the Director General of Insolvency.[6]

  1. Interim Order

 

The interim order will only last for 90 days and cannot be extended.[7] The interim order will grant protection to the debtor in the sense that  no bankruptcy petition and no legal proceedings against the debtor except with permission from the court.[8]

 

  1. Meeting of creditors

 

Within the 90-day period following the interim order, the nominee will hold a meeting of the creditors to try to convince the creditors to approve the debtor’s proposal for a voluntary arrangement.[9]

 

  1. Report of decisions to court

After the conclusion of the meeting of the creditors, the nominee shall report the decision of the meeting to the court and serve a copy of the report containing the terms of the voluntary arrangement under the seal of the court to the debtor and creditors.[10]

Should the meeting of creditors has refused to approve the debtor’s proposal, the court may set aside the or any interim order in relation to the debtor.[11]

If the meeting of creditors has approved the proposed voluntary arrangement, the approved voluntary arrangement shall be binding to all the creditors.[12]

Please note that this voluntary arrangement does not apply to an undischarged bankrupt and a limited liability partnership within the meaning of the Limited Liability Partnership Act 2012.[13]

Mohammad Afif Daud is a Partner at Messrs. Afif Rahman & Chong.

 

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for a specific technical or legal advice on the information provided and related topics.

[1]              Section 2A to 2Q of the Insolvency Act 1967 on voluntary arrangement.

[2]              Section 2C (1) of the Insolvency Act 1967 on proposal for voluntary arrangement.

[3]              Section 2A of the Insolvency Act 1967 on definition of voluntary arrangement.

[4]              Section 2C (2) (a) of the Insolvency Act on intention to propose voluntary arrangement.

[5]              Section 2G (1) (a) of the Insolvency Act 1967 on conditions for a nominee. For other conditions and requirements, refer to section 2G (b) to (e) of the Insolvency Act 1967.

[6]              Section 2C (2) (b) of the Insolvency Act on intention to propose voluntary arrangement.

[7]              Section 2D (3) of the Insolvency Act on interim order.

[8]              Section 2E of the Insolvency Act on effect of interim order.

[9]              Section 2I of the Insolvency Act 1967 on meeting of creditors to approve debtor’s proposal.

[10]             Section 2J (1) of the Insolvency Act 1967 on reporting decisions to court.

[11]             Section 2J (2) of the Insolvency Act 1967 on decline of proposal.

[12]             Section 2K (1) of the Insolvency Act 1967 on effect of approval.

[13]             Section 2B of the Insolvency Act 1967 on non-application of voluntary arrangement.

2017-11-23T07:41:54+00:00